I am the director of the Tax Policy Center (TPC), Paul Volcker Professor of Public Administration and International Affairs at the Maxwell School of Syracuse University, and a research associate at the National Bureau of Economic Research and the Center for Policy Research. My research focuses on federal tax and budget policy. In 2002, I co-founded the TPC. I served several stints in government, including as Deputy Assistant Secretary for Tax Analysis at the US Treasury and Senior Analyst at the Congressional Budget Office. I was president of the National Tax Association from 2010-2011. I have a Ph.D. in economics from the University of Minnesota and a B.A. from Wesleyan University. I have four adult kids and am married to my college sweetheart, Missie Burman. I'm an avid bicyclist and sing baritone in the Syracuse Oratorio Society. I also like to cook.

The author is a Forbes contributor. The opinions expressed are those of the writer.

Rick Perry: Middle Income Americans Don't Pay Enough Income Taxes

I’ve been blissfully off the grid for the past few days, cycling in Western New York. (Allegany State Park is absolutely gorgeous. Made me be glad to be paying taxes in New York State.) I could forget about the debt ceiling fiasco, 9 percent unemployment, the tea party, runaway health spending, global warming, the NBA lockout…

We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax. (Quoted in this terrific Ruth Marcus column.)

We’re apparently not dismayed that more than half of all Americans have been in a 30-year recession with little or no income growth. We’re apparently willing to write off Social Security and Medicare payroll taxes, which are the big federal taxes for low- and middle-income Americans. A family of four earning $30,000 may pay no federal income tax, but it pays $4,590 in payroll taxes (including the employer’s share, which economists believe is ultimately paid by the employee in the form of lower wages). Payroll taxes are much bigger than income taxes for most families.

Among working households, 82 percent pay more payroll tax than income tax. They also pay federal excise taxes on gasoline, beer, wine, liquor, tires, and cigarettes. And state and local taxes are notoriously regressive. Feel better, governor?

It’s true that middle income people don’t pay the estate tax. Nor do most rich people. Are we dismayed about that?

Here’s another shocker for the governor: the recession surely caused many households to join the ranks of “lucky duckies.” (This is the Wall Street Journal’s term for people so poor that they don’t owe income taxes. My reaction is here.) Are we dismayed that after dad lost his job due to the recession, the family can still claim the child tax credit so long as mom keeps working?

Okay, here are some facts, courtesy of the Tax Policy Center. They may not allay Mr. Perry’s dismay, but they should assuage the concerns of anyone with a soul.

Of the 46% of households who don’t pay income tax, nearly 2/3 pay payroll taxes.

Of the 18% who pay neither income nor payroll taxes, more than half are elderly.

More than 1/3 have incomes below $20,000. (Note: Ronald Reagan made the decision in 1986 to exempt people with incomes below the poverty line from federal income tax. Twenty-five years later, that still seems like a good call.)

Only 1% of nontaxpaying households are nonelderly with incomes over $20,000. I’m dismayed about them too governor. Maybe we should close some of the loopholes that allowed almost 1,500 millionaires to escape income tax in 2009.

Governor Perry’s dismay raises some questions about the potential tax policy implications. Does he want to raise taxes on lower-income elderly people—by far the largest category of lucky duckies? Does he want to raise income taxes on the bottom 50% of taxpayers? If so, wouldn’t that trickle up to raises taxes on most if not all of the middle class? How does that square with his pledge to never ever raise taxes? To keep his “tax reform” from being a net tax increase, he’d have to give tax cuts to high income folks.

Oh, right, we have to raise taxes on the working poor and the middle class to finance even more tax breaks for millionaires.

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Ricky, my boy, as a fellow Texan and conservative, I’d probably vote for you if it came down to it. Having said that, until GE pays more income tax than I do, you can put middle class income taxes where the sun don’t shine.

I am appalled that Forbes is willing to print this column. Nothing in it stands up to even light scrutiny. If you are going to carry water for the left, atleast do a better job. Social Security and Medicare were sold as essentially an insurance investment. For most of us Social Security sucks as an investment providing a 0% return over 30+ years. But hey, that is progressive economics for you. Further social security and medicare are supposed to be independent of the rest of the federal government – you remember Al Gore’s so called “locked box”. Your Social Security and Medicare taxes purportedly are collected to pay for your future social security and medicare benefits. Except that instead of being an investment, it is a Ponzi scheme – but hey what do you expect from the people who brought us Cabrini Green. Regardless, The TSA, DoD, DoE, …. all of what we think of as the federal government, are paid for by those taxes that most of us do not pay. Regardless of what groups pay the largest share of the cost of government – it is an extremely bad idea for a large percentage of us to pay NOTHING towards its operation. The progressive meme that the bottom quintile has been stagnant for the past thirty years has been repeatedly debunked. If you are old enough to have seen how the poor lived 30 years ago you know better. But even ignoring that, this nation has absorbed and additional 7 million illegal aliens not to mention countless legal ones in the past 3 decades. I am not sure how you can invite millions of new poor people into the country and then claim that wages for the poor are stagnant. Subtract new immigrants legal or otherwise and even the warped statistics the government keeps will tell a different story.

“For most of us Social Security sucks as an investment providing a 0% return over 30+ years.”

And who, precisely, is “us”, dhlii1? Surely not the American public in general. Who exactly are these terribly economically abused people and what exactly are they deprived of in their daily lives as a result?

Frankly, I would love to see your “us” group begin to think as statemen with a broad concern for the welfare of the entire citizenry of their country, not just the welfare of their own class.

If giving significant tax cuts to the top wealthholders in the US created jobs, well.. we’ve had those cuts in place for a long time now. Where, pray tell, are the jobs? How many of them support families to the point where those job holders have been pushed into the income levels where significant taxes are collected? Why does a country that was one the economic powerhouse that the US once was even have such a thing as ‘the working poor’?

I’m puzzled by the comment that “The progressive meme that the bottom quintile has been stagnant for the past thirty years has been repeatedly debunked.” It might have been debunked in the sense that someone put some bogus study on the internet that seemed to support the Dr. Pangloss view of inequality and thousands of people who wanted to believe this to be true mimicked it, but actual economic research consistently shows rising income and wealth inequality. For example, see Table 1 of this article by Emmanuel Saez (who recently won the American Economic Association’s John Bates Clark Award for the best economist under 40), http://elsa.berkeley.edu/~saez/saez-UStopincomes-2008.pdf. It shows that inflation-adjusted income for the top 1% grew at a rate of 3.94% per year between 1993 and 2008 while real income for the bottom 99% grew at just 0.75%.

Or look at median wages for full-time, full-year workers as reported by the Census Department. After adjusting for inflation, they increased by 0.15% per year between 1974 and 2009. Even accounting for changes in immigration, this paints a pretty bleak picture of middle class wages.

It’s pretty clear to me (and most economists) that income growth has been very concentrated at the top. Even if you think this is cool, you should worry that a system where almost all of the growth goes to benefit a fraction of the population will not be politically sustainable. And if there is a populist revolt, the measures taken to mitigate inequality might turn out to be much more economically damaging than a moderately progressive income tax.

I think he’s repeating that sad Fox News argument, “they’re not poor, they have refrigerators!”. I guess we can’t raise taxes back to the clinton levels until we’ve taken every last thing the poor has.

Funny how you disprove a number of your own arguments, then use catchphrases like “that’s progressive economics” to somehow distract from the fact that you acknowledged your own argument was incorrect.

As far as “The progressive meme that the bottom quintile has been stagnant for the past thirty years has been repeatedly debunked”, I’d love to see your unbiased citation for that. Since the take-home income of both of the lowest two quintiles was stagnant from 1980 to 2005 in real 2005 dollars, and that was BEFORE the recession hit and unemployment doubled, I really doubt those bottom 2 quintiles are doing better now.

Again I cannot speak for all people but for my Father, a small business owner, who died at age 35, my mother a Physicians Assistant who died at age 50 and my older brother, a soldier, who died at age 55, all of theses members of my family paid into the system and NONE of them took from it, for all of them Social Security was nothing more than a government scam that took from them and gave nothing back.

Wealth inequality? Where in our constitution does it guarantee equal wealth for everyone? Last I checked, we are guaranteed equal opportunity, not equal outcome. This “inequality” is just one group coveting what another group has. Class warfare at its finest.

I sympathize with the poor. Heck, I was one of them for the first half of my life, but I took advantage of my opportunity to pull myself out of that rut. Now, I’m suddenly demonized as evil and greedy simply because I want to keep what I’ve sacrificed and worked hard (full-time consulting plus two sideline businesses at > 90 hours per week) to earn.

Not to mention all the misinformation going around about corporate taxes. People only look at media headlines and don’t understand that the reason a company like GE doesn’t pay taxes in a given year is because they had losses carried forward. Companies only pay tax on profit after losses and expenses. Anyone who’s ever run a business understands this. But it gets people more stirred up to say out of context that “GE doesn’t pay taxes.”

I don’t even factor social security into my retirement plans because I don’t expect it will still be around when it’s my turn to retire. For me, SS is not insurance. It’s just another tax from which I’ll derive no benefits. Yet some people want me to pay even more of this tax by eliminating the SS cap. Would you want to pay more toward something that will never benefit you? I didn’t think so.

If I could get back every penny I’ve already paid and invest it myself, I’d gladly forgo any attempt to collect from SS at all. Heck, even stopping my current contributions and allowing me to keep that money in my own pocket would put me ahead of what I might get from SS (not that I expect to get anything, anyway).

Len, you raise an interesting question here. Given two facts 1) wage incomes have stayed the same between 79 and 09. 2) increasing availability of “easy credit”. It makes me wonder: are the low and middle class living on money they haven’t made yet? Based on the current rates of foreclosure and I think more than half of the middle class live paycheck to paycheck, it would seem to me that the upper 1% waited to purchase until they had sufficient funds to pay for their nice things, whereas the middle class purchases well before they can truly afford their purchases. Essentially, buying habits and expectations have changed over the last 30 years and the upper 1% follow those old habits where the bottom 99% follow the new habits.

Two things: (1) You’re not demonized for being rich. Americans admire the successful and one of the most endearing things about the American psyche is that most of us think that we will be rich some day. That’s certainly one reason why high income people here face lower tax burdens than in most of the developed world. (2) It’s admirable that you were able to take advantage of your opportunities, but you should recognize that not everybody has the same opportunities. Your implicit message is that you’re rich because you’re better than poor and middle class people. Some people have lower incomes because they’re slackers, but many are just unlucky. In that category is a lot of the middle class whose wages have stagnated for decades. We don’t have equal opportunity and never will when people are born into different circumstances and with different talents.

And equality of outcome is not the goal, but mitigating extreme inequality is (in my opinion). The progressive income tax is an important tool to accomplish that.